The bosses of the largest investment platforms in the UK have called for a “radical” simplification of the ISA regime, arguing that reform could unlock £30bn to boost British equities.
AJ Bell has called for the combination of Cash ISAs, Stocks and Shares ISAs, Junior ISAs and Innovative Finance ISAs in a single ‘One ISA’ product in a letter to chancellor Rachel Reeves.
Michael Summersgill, chief executive of the investment platform, said that central to the new Labour government’s pledge to deliver economic growth was ISA reform, with the party committing to ISA simplification in their plan for ‘Financing Growth’ published in January.
As part of the plan, Labour pledged to simplify the ISA landscape “to make it as easy as possible for people to feel the benefits of saving and investing their money, including through increased utilisation of Stocks and Shares ISAs”.
There are currently around three million people in the UK with £20,000 or more invested in Cash ISAs despite investing no money in Stocks and Shares ISAs, according to data from HMRC.
If just half of that money was invested for the long term, an additional £30bn of investment would be unlocked, AJ Bell calculated.
“That is a conservative estimate and the actual figure may be far higher, given that HMRC’s data indicates many of those individuals hold a Cash ISA balance far in excess of £20,000,” added Summergill.
AJ Bell’s simplification drive was supported by the chief of Hargreaves Lansdown, along with senior figures from Fidelity International and Abrdn, they told the Financial Times.
The details of AJ Bell’s proposed simplification structure would see the annual ISA allowance raised to £9,000 for under 18s, rising with inflation every year, and £25,000 or the in-force ISA allowance at introduction if higher, also rising with inflation every year, up from the current £20,000 limit.
“Given around half of ISA assets held on AJ Bell’s platform are UK-focused, simply increasing the overall ISA allowance from £20,000 to £25,000 should naturally drive more money towards UK plc,” Summersgill explained.
Permitted investments would be the same as under the current stocks and shares ISA, with withdrawals allowed from age 18 onwards with no withdrawal penalty.
Full and partial transfers would also be allowed between the currently existing Lifetime ISA and Help to Buy ISA, with the proposed British ISA being scrapped.
AJ Bell was strongly against a British ISA when it was announced earlier this year, with Summersgill slamming it as an “ill-conceived, politically motivated decision”.
The investment platform also floated more radical changes to boost UK investments, such as scrapping stamp duty on UK investments, or extending the inheritance tax exemption on AIM stocks to include all UK shares and funds that invest in them.
“If radical ISA simplification is coupled with sensible reforms to the advice guidance boundary, the UK will have the foundations for an investing revolution, benefitting individuals and the wider economy,” Summersgill concluded.